Factors Affecting the Liquidity of the Qatar Stock Exchange

The purpose of this paper is to study the factors that affect the liquidity of the Qatar Stock Exchange. We aim to analyze the relationship of macroeconomic variables (GDP Growth rate, Inflation rate, Deposit rate, and Money supply), financial openness, foreign ownership and stock returns with the liquidity in the context of the Qatar Stock Exchange.In particular, this study examines the empirical relationship of the above-mentioned independent variables with the two different proxies of liquidity i.e., bid-ask spread and turnover ratio. Lower bid-ask spread and higher turnover ratios indicates the high liquidity in a stock market. We used multivariate panel data regression analysis to study the relationship.The empirical findings show that foreign ownership, GDP growth rate, deposit rate, inflation rate, foreign direct investment (FDI) and money supply (M1) reduce the bid-ask spread, and significantly increase the turnover ratio. It shows that these factors significantly increase the liquidity of the Qatar Stock Exchange. On the other hand, stock returns significantly increase the bid-ask spread and decrease the turnover ratio, decreasing the overall liquidity of Qatar Stock Exchange. The deposit rate has both negative and positive impact on the liquidity, as it significantly increases the bid-ask spread while it also significantly increases the turnover ratio in the Qatar Stock Exchange.Our recommendations are based on the empirical analysis, elite interviews and literature of developed stock markets. The recommendations for regulators include but not limited to enhanced regulations, financial training programs, joint sessions and incentive programs for unlisted firms, transparency, investment advisory services, innovation and technology.